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Which Home Improvements Pay Off?

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Generally speaking, there are two ways to go about making home improvements. Either you splurge for something purely for the pleasure of having it — the Italian marble bathroom you've dreamed about; that skylight that your spouse has been hinting at for the last six years — or you take a pragmatic approach, buying an energy-efficient furnace or repairing a leaky roof because you want to increase your home's market value.

Don't expect to score on both counts. "Just because you pour $20,000 into your home doesn't mean that your house is worth $20,000 more," says Frank Dell'Accio, a real-estate broker in Lindenhurst, N.Y. "I had a guy who invested $100,000 in a $130,000 home after he lived there for four years. He put it on the market at $225,000. He was offered $170,000." His mistake: spending money on amenities that were only peripheral to the value of the house. "He wanted phones in the bathroom," says Dell'Accio, "but [who else is] going to pay for them?"

Exactly how much you'll recoup in costs depends on several factors, including the direction of the broader housing market, the value of the homes in your neighborhood, when you plan to sell the home and the nature of the project itself, explains Jim Cory, editor of Replacement Contractor magazine. In the hottest housing markets, you could indeed earn more than your investment back on a remodeling project. Adding a midrange deck to a home in San Francisco, for example, recoups 131% of its costs, according to Remodeling magazine's latest survey (which assesses the cost recouped should the house be sold within one year of project completion). But you shouldn't count on those types of returns. In Columbus, Ohio, the same project is likely to only recoup 57% of its costs.

And keep in mind that the longer you hold on to your home after a remodeling project is completed, the less likely you are to recoup its value. That's in part because design tastes can shift significantly over time. Remember when avocado green was all the rage? Also, there's little reward for having the fanciest house on the block, warns certified financial planner Dee Lee of Harvard, Mass. A house that's priced higher than its neighboring homes could be perceived as overpriced — even if it does have more value.

This section examines a few improvements that pay off more often than not — and some that rarely make a difference when it comes time to sell your home.

Kitchens

Even a few basic improvements to your kitchen can pay handsome dividends, says real-estate agent Michael Murphy in his book "How to Sell Your Home in Good or Bad Times." Murphy writes: "For most buyers, [the kitchen] is the heart of the house. Paint, wallpaper, and even refloor the room if necessary. Consider sanding, staining or painting dingy-looking cabinets. Replace old cabinet hardware — a low-cost improvement that makes a big difference in appearance." Just be sure to go with a classic design and, if possible, use high quality materials, says Cory. After all, good taste endures.

The average amount spent on a major kitchen-remodeling job in the U.S. is $55,503 for a midrange update; an upscale designer makeover averaged $109,394, according to Remodeling magazine. The mid-range kitchen overhaul nationally recouped 78% of its cost and 74% of the costs were recovered in an upscale makeover.

Creating New Space

As a rule, improvements that increase the functional space of a home hold their value longer than ones that just make a house look better. It's also significantly cheaper than adding an addition to your home. Converting an attic into a bedroom suite, for example, usually costs about $46,691 and returns 77% of its cost, according to Remodeling magazine. Turning your basement into a room for socializing will set you back, on average, $59,435, and allow you to recoup 75% of your costs.

An Extra Bathroom

Adding an extra bathroom with all the trimmings — marble vanity top, molded sink, bathtub with shower and ceramic tile — almost pays for itself. A midrange full-bath remodeling job in the U.S. has an average price tag of $15,789 and recoups 78% of the costs. A midrange full-bath addition has a national average cost of $37,202 and generally recoups 66% of its cost.

Decks

Installing a deck may be the most cost-efficient way to add square footage to your house, and of all the outdoor home improvements except painting, it may be the most reliable value. Decks additions average $10,347 and generally recoup 85% of their value.

New Windows

The savings on your utility bill might make up for the spotty resale value. Replacing 10 three-by-five-foot windows typically costs $11,384 and recovers 81% of its costs at resale, according to Remodeling magazine. "A good window arrangement, as long as they're standard, will make money back," says William Eccleston, a broker in Coventry, R.I. But, he warns, "as soon as you get into customizing, with fancy shapes, bays and bows you can't see from the street, you're throwing money down the drain."

Swimming Pools

It's commonly agreed that a swimming pool has no resale value at all. "I've had clients spend $300,000 and fill in the pool," says one agent. The main reason pools repel more prospective buyers than they attract is that they require expensive upkeep. Running a close second is the fear of liability: Pool accidents are a quick way to end up the subject of a negligence suit. "A lot of people don't want the responsibility," says Cory.

Manicured Gardens

Fancy gardens — which will require time and money to tend — usually won't add to the offering price. "Landscaping is for your own enjoyment," says New Jersey agent Frank Dell'Accio. "It may be a $40,000 investment, but there's no way it'll add $40,000 to the value of your house." The same goes for expensive fences and stone walls. They look nice, but buyers don't pay up for them.

Basic Improvements

It may not be all that enjoyable, but it's the basic improvements that may have the greatest return on your home's value. "You could have a beautiful new kitchen, but if your roof is leaking, you have a real problem," says Cory. So if you're thinking of putting your house on the market in the next year or so, be sure to tackle any problems with the home's structure or mechanical systems before you, say, install that hot tub you've always dreamed of.

SmartMoney.com © 2007 SmartMoney. SmartMoney is a joint publishing venture of Dow Jones & Company, Inc. and Hearst SM Partnership. SmartMoney is a registered trademark. All Rights Reserved.

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